Country X exhibits a high population growth rate alongside low domestic savings, resulting in minimal capital formation per worker. According to Ragnar Nurkse's formulation of the vicious cycle of poverty on the supply side, which macroeconomic mechanism primarily perpetuates this low-level development trap?
- Low real income leads to low capacity to save, which restricts capital accumulation, resulting in low productivity and sustained low real income.Cevap
- BRapid GDP expansion automatically guarantees structural development, but foreign exchange volatility disrupts domestic price levels.
- CForeign direct investment transactions are incorrectly categorized under the current account instead of the capital account, depressing official reserve balances.
- DExpanding government recurrent expenditure boosts long-term productive capacity at the same rate as capital expenditure, eliminating the investment gap.
Cevap
Low real income leads to low capacity to save, which restricts capital accumulation, resulting in low productivity and sustained low real income.
The supply side of the vicious cycle of poverty demonstrates how low level of real per capita income leads to a low capacity to save. Low savings result in low rates of investment and capital formation, which maintains low worker productivity and reinforces low real income.
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Vicious Cycle of Poverty and Low Capital Formation
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